CS Executive Capital Structure Notes

CAPITAL STRUCTURE

Topics Covered:

  • Classification of Share Capital
  • Kinds of Share Capital
    • Equity Shares
      • With voting rights (Normal Equity Shares)
      • With differential rights as to dividend, voting or otherwise (DVR)
    • Preference Shares
  • Sweat Equity Shares
  • Further issue of shares
    • Rights Shares
    • Preferential Issue
  • Bonus Shares
  • Employee Stock Option Scheme

Meaning and nature of a Share

According to Section 2(84)

  • Share means a share in the share capital of a company, and includes stock except where a distinction between stock and shares is expressed or implied.

A share is a right/interestof a person in a company which can be measured in terms of money. According to Section 44, the shares or debentures or other interest of any member in a company shall be movable property transferable in the manner provided by the articles of the company.

Kinds of share capital
According to Section 43, the share capital of a company limited by shares shall be of two kinds, namely:—
(a) equity share capital—
(i) with voting rights; or
(ii) with differential rights as to dividend, voting or otherwise in accordance with such rules as may be prescribed; and
(b) preference share capital

Equity Share Capital
Equity share capital, with reference to any company limited by shares, means all share capital which is not preference share capital.

Preference Share Capital
Preference share capital, with reference to any company limited by shares, means that part of the issued share capital of the company which carries or would carry a preferential right with respect to—
(a) payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income-tax; and
(b) repayment of capital, in the case of a winding up or otherwise, of the amount of the share capital paid-up or deemed to have been paid-up;

Participating Preference Shares and Non-Participating Preference Shares
Preference shares are called participating if

(a) in respect of dividends, in addition to the preferential rights to the dividend they are entitled to, they have a right to participate, whether fully or to a limited extent, with capital not entitled to the preferential right aforesaid; and/or
(b) in respect of capital, in addition to the preferential right to the repayment of paid-up capital , on a winding up, they have a right to participate, whether fully or to a limited extent, with capital not entitled to that preferential right in any surplus which may remain after the entire capital has been repaid.

Cumulative Preference Shares and Non-Cumulative Preference Shares
Preference shares are called cumulative if
– dividend on those shares keeps on accumulating year after year until the dividend is fully paid.

Voting rights of Preference Share holder
According to Section 47(2), every member of a company limited by shares and holding any preference share capital therein shall, in respect of such capital, have a right to vote
– only on resolutions placed before the company which directly affect the rights attached to his preference shares and,
– on any resolution for the winding up of the company or for the repayment or reduction of its equity or preference share capital.

But where the dividend in respect of a class of preference shares has not been paid for a period of two years or more, such class of preference shareholders shall have a right to vote on all the resolutions placed before the company.

Issue and redemption of preference shares (Section 55 read with Rule 9 of Share Capital and Debentures Rules, 2014)

Irredeemable preference shares not allowed
No company limited by shares shall issue any preference shares which are irredeemable.

Maximum tenure of preference shares (20 Years)
A company limited by shares may issue preference shares which are liable to be redeemed within a period not exceeding 20 years from the date of their issue.

Note: Issue and redemption of preference shares by company in infrastructural projects (Rule 10)
A company engaged in the setting up and dealing with of infrastructural projects may issue preference shares for a period exceeding 20 years but not exceeding 30 years, subject to the redemption of a minimum 10% of such preference shares per year from the 21th year onwards or earlier, on proportionate basis, at the option of the preference shareholders.

Conditions for issue of preference shares
1. A company having a share capital may, if so authorised by its articles, issue preference shares subject to the following conditions, namely:-
(a) the issue of such shares has been authorized by passing a special resolution in the general meeting of the company
(b) the company, at the time of such issue of preference shares, has no subsisting default in the redemption of preference shares issued or in payment of dividend due on any preference shares.
2. A company issuing preference shares shall set out in the resolution, particulars in respect of the following matters relating to such shares, namely:-
(a) the priority with respect to payment of dividend or repayment of capital vis-a-vis equity shares;
(b) the participation in surplus fund;
(c) the participation in surplus assets and profits, on winding-up which may remain after the entire capital has been repaid;
(d) the payment of dividend on cumulative or non-cumulative basis.
(e) the conversion of preference shares into equity shares.
(f) the voting rights;
(g) the redemption of preference shares.
3. The explanatory statement to be annexed to the notice of the general meeting pursuant to section 102 shall, inter-alia, provide the complete material facts concerned with and relevant to the issue of such shares, including-
(a) the size of the issue and number of preference shares to be issued and nominal value of each share;
(b) the nature of such shares i.e. cumulative or non-cumulative, participating or non-participating , convertible or non-convertible
(c) the objectives of the issue;
(d) the manner of issue of shares;
(e) the price at which such shares are proposed to be issued;
(f) the basis on which the price has been arrived at;
(g) the terms of issue, including terms and rate of dividend on each share, etc.;
(h) the terms of redemption, including the tenure of redemption, redemption of shares at premium and if the preference shares are convertible, the terms of conversion;
(i) the manner and modes of redemption;
(j) the current shareholding pattern of the company;
(k) the expected dilution in equity share capital upon conversion of preference shares.
4. Where a company issues preference shares, the Register of Members maintained under section 88 shall contain the particulars in respect of such preference share holder(s).

Conditions related to redemption of preference shares
1. Source of funds
No preference shares shall be redeemed except
o out of the profits of the company which would otherwise be available for dividend or
o out of the proceeds of a fresh issue of shares made for the purposes of such redemption
2. Only fully paid preference shares shall be redeemed
No such shares shall be redeemed unless they are fully paid
3. If preference shares are redeemed out of the profits – Capital Redemption Reserve Account
Where such shares are proposed to be redeemed out of the profits of the company, there shall, out of such profits, be transferred, a sum equal to the nominal amount of the shares to be redeemed, to a reserve, to be called the Capital Redemption Reserve Account, and the provisions of this Act relating to reduction of share capital of a company shall, except as provided in this section, apply as if the Capital Redemption Reserve Account were paid-up share capital of the company.
Company may use CRR paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares.
4. Premium payable on redemption
The premium, if any, payable on redemption shall be provided for out of the profits of the company or out of the company’s securities premium account, before such shares are redeemed.
5. Issue of further redeemable preference shares in respect of unredeemed preference shares
Where a company is not in a position to redeem any preference shares or to pay dividend, if any, on such shares in accordance with the terms of issue, it may,
o with the consent of the holders of three-fourths in value of such preference shares and
o with the approval of the Tribunal on a petition made by it in this behalf,
issue further redeemable preference shares equal to theamount due, including the dividend thereon, in respect of the unredeemed preference shares,and on the issue of such further redeemable preference shares, the unredeemed preference shares shall be deemed to have been redeemed
6. A company may redeem its preference shares only on the terms on which they were issued or as varied after due approval of preference shareholders under section 48 of the Act and the preference shares may be redeemed:-
(a) at a fixed time or on the happening of a particular event;
(b) any time at the company’s option; or
(c) any time at the shareholder’s option.

Equity Shares with Differential Rights (DVR)

Issue of equity shares with differential rights as to dividend, voting or otherwise (Section 43 read with Rule 4 of Share Capital and Debentures Rules, 2014)
1. No company limited by shares shall issue equity shares with differential rights as to dividend, voting or otherwise, unless it complies with the following conditions, namely:-
(a) Authorisation in AOA;
(b) Ordinary resolution by shareholders (by postal ballot in case of listed companies);
(c) Shall not exceed 26% of the total post-issue paid up equity share capital including such shares at any point of time;
(d) Consistent track record of distributable profits for the last 3 years;
(e) No default in filing financial statements and annual returns for three financial years immediately preceding the financial year in which it is decided to issue such shares;
(f) No subsisting default in the
– payment of a declared dividend or
– repayment of its matured deposits or
– redemption of its preference shares or debentures;
(g) No default in
– payment of the dividend on preference shares or
– repayment of any term loan/interest from a public financial institution or State level financial institution or scheduled Bank or
– dues with respect to statutory payments relating to its employees to any authority or
– crediting the amount in Investor Education and Protection Fund;
(h) Not penalized by Court or Tribunal during the last three years of any offence under
– the Reserve Bank of India Act, 1934 ,
– the Securities and Exchange Board of India Act, 1992,
– the Securities Contracts Regulation Act, 1956,
– the Foreign Exchange Management Act, 1999 or
– any other special Act, under which such companies being regulated.

  1. The explanatory statement to be annexed to the notice of the general meeting in pursuance of section 102 or of a postal ballot in pursuance of section 110 shall contain the following particulars, namely:-
    (a) the total number of shares to be issued with differential rights;
    (b) the details of the differential rights ;
    (c) the percentage of the shares with differential rights to the total post issue paid up equity share capital including such shares issued at any point of time;
    (d) the reasons or justification for the issue;
    (e) the price at which such shares are proposed to be issued either at par or at premium;
    (f) the basis on which the price has been arrived at;
    (g) (i) in case of private placement or preferential issue-
    (a) details of total number of shares proposed to be allotted to
    o promoters, directors and key managerial personnel;
    o other persons and their relationship with any promoter, director or KMP;
    (ii) in case of public issue
    o reservation, if any, for different classes of applicants including promoters, directors or key managerial personnel;
    (h) the percentage of voting right which the equity share capital with differential voting right shall carry to the total voting right of the aggregate equity share capital;
    (i) the scale or proportion in which the voting rights of such class or type of shares shall vary;
    (j) the change in control, if any, in the company that may occur consequent to the issue of equity shares with differential voting rights;
    (k) the diluted EPS pursuant to the issue of such shares;
  2. The company shall not convert its existing equity share capital with voting rights into equity share capital carrying differential voting rights and vice–versa.
  3. The Board of Directors shall, inter alia, disclose in the Board’s Report for the financial year in which the issue of equity shares with differential rights was completed, the following details, namely:-
    (a) the total number of shares allotted with differential rights;
    (b) the details of the differential rights relating to voting rights and dividends;
    (c) the percentage of the shares with differential rights to the total post issue equity share capital with differential rights issued at any point of time and percentage of voting rights which the equity share capital with differential voting right shall carry to the total voting right of the aggregate equity share capital;
    (d) the price at which such shares have been issued;
    (e) the particulars of promoters, directors or key managerial personnel to whom such shares are issued;
    (f) the change in control, if any, in the company consequent to the issue of equity shares with differential voting rights;
    (g) the diluted EPS pursuant to the issue of each class of shares;
  4. The holders of the equity shares with differential rights shall enjoy all other rights such as bonus shares, rights shares etc., which the holders of equity shares are entitled to, subject to the differential rights with which such shares have been issued.
  5. Where a company issues equity shares with differential rights, the Register of Members maintained under section 88 shall contain all the relevant particulars of the shares so issued along with details of the shareholders.

Sweat Equity Shares

According to section 2(88), sweat equity shares mean equity shares issued by a company to its directors or employees at a discount or for consideration, other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

Meaning of Employee
According to Explanation to Rule 8(1) of Companies (Share Capital and Debentures) Rules, 2014.
Employee means-
(a) a permanent employee of the company who has been working in India or outside India, for at least last one year; or
(b) a director of the company, whether a whole time director or not; or
(c) an employee or a director as defined in sub-clauses (a) or (b) above of a subsidiary, in India or outside India, or of a holding company of the company;

Meaning of Value Additions
Value additions means actual or anticipated economic benefits derived or to be derived by the company from an expert or a professional for providing know-how or making available rights in the nature of intellectual property rights, by such person to whom sweat equity is being issued for which the consideration is not paid or included in the normal remuneration payable under the contract of employment, in the case of an employee.

Conditions for Issue of Sweat Equity Shares
Section 54(1) provides that notwithstanding anything contained in Section 53, a company can issue sweat equity shares, of a class of shares already issued, if the following conditions are satisfied:
i. the issue has been authorised by a special resolution passed by the company in the general meeting.
ii. the following are clearly specified in the resolution:
(a) number of shares;
(b) current market price;
(c) consideration, if any; and
(d) class or classes of directors or employees to whom such equity shares are to be issued.
iii. as on the date of issue, at least one year should have elapsed from the date on which the companyhad commenced business.
iv. a company whose shares are listed on a recognized stock exchange issuing sweat equity sharesshould comply with the regulations made in this behalf by SEBI.
v. a company whose shares are not so listed should issue sweat equity shares in compliance with therules made in this behalf by the Central Government (i.e., Companies (Share Capital andDebentures) Rules, 2014)

Holders of Sweat Equity Shares to be ranked paripassu with other Equity share holders
Section 54(2) provides that the rights, limitations, restrictions and provisions as are for the time being applicable to equity shares shall be applicable to the sweat equity shares issued under this section and the holders of such shares shall rank paripassu with other equity shareholders.

Rule 8 of Companies (Share Capital and Debentures) Rules, 2014
1. Unlisted Company – Special Resolution (SR).
2. The explanatory statement shall contain the following particulars, namely:-
(a) the date of the Board meeting at which the proposal for issue of SES was approved;
(b) the reasons or justification for the issue;
(c) the class of shares under which sweat equity shares are intended to be issued;
(d) the total number of shares to be issued as sweat equity;
(e) the class of directors or employees to whom such equity shares are to be issued;
(f) terms and conditions of issue, including basis of valuation;
(g) the time period of association of such person with the company;
(h) the names of the directors or employees to whom the SES will be issued and their relationship with the promoter or/and KMP;
(i) the price at which the sweat equity shares are proposed to be issued;
(j) the consideration, if any to be received for the sweat equity;
(k) the ceiling on managerial remuneration, if any, be breached by issuance of such sweat equity and how it is proposed to be dealt with;
(l) diluted EPS pursuant to the issue of SES.
3. Validity of special resolution for making the allotment – 12 months from passing of SR.
4. Max. number of sweat equity shares in a year
– 15% of the existing paid up equity sharecapital in a year or
– shares of the issue value of rupees five crores,
whichever is higher.
But the issuance of sweat equity shares in the Company shall not exceed 25%, of thepaid up equity capital of the Company at any time.
5. Lock in for sweat equity shares issued to directors or employees – 3 years from allotment.
6. The valuation of
– intellectual property rights or
– know how or
– value additions
for which sweat equity shares are to be issued, shall be carried out by a registered valuer, who shall provide a proper report addressed to the BOD with justification.
7. A copy of gist along with critical elements of the valuation report obtained shall be sent to the shareholders with the notice of the general meeting.
8. Where sweat equity shares are issued for a non-cash consideration on the basis of a valuation report in respect thereof obtained from the registered valuer, such non-cash consideration shall be treated in the following manner in the books of account of the company-
(a) where the non-cash consideration takes the form of a depreciable or amortizable asset, it shall be carried to the balance sheet of the company in accordance with the accounting standards; or
(b) where clause (a) is not applicable, it shall be expensed as provided in the accounting standards.
9. The amount of sweat equity shares issued shall be treated as part of managerial remuneration for the purposes of sections 197 and 198 of the Act, if the following conditions are fulfilled, namely.-
(a) the sweat equity shares are issued to any director or manager; and
(b) they are issued for consideration other than cash, which does not take the form of an asset which can be carried to the balance sheet.
10. In respect of sweat equity shares issued during an accounting period, the accounting value of sweat equity sharesshall be treated as a form of compensation to the employee or the director in the financial statements of thecompany, if the sweat equity shares are not issued pursuant to acquisition of an asset.
11. If the shares are issued pursuant to acquisition of an asset, the value of the asset, as determined by the valuationreport, shall be carried in the balance sheet and such amount of the accountingvalue of the sweat equity shares that is in excess of the value of the asset acquired, as per the valuation report,shall be treated as a form of compensation to the employee or the director in the financial statements of thecompany.

Further Issue of Shares (Section 62)

According Section 62(1), where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered as
– Right Shares
– Shares under a scheme of employees’ stock option to employees
– Shares on preferential basis
– Bonus Shares

Right Shares [Section 62(1)(a)]
Right shares means shares to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely:—
(i) Minimum and maximum subscription period: The offer shall be made by notice specifying the number of shares offered and limiting a time not being less than 15 days and not exceeding 30 days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined. The notice shall be despatched through registered post or speed post or through electronic mode to all the existing shareholders at least three days before the opening of the issue.
(ii) Renunciation option: Unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice of right issue shall contain a statement of this right
(iii) Powers of Board of Directors to dispose of the shares: After the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not dis-advantageous to the shareholders and the company

The provisions of section 62 are applicable to all types of companies except the Nidhi companies.

Shares under employees’ stock option scheme [Section 62(1)(b) read with Rule 8 of Share Capital and Debentures Rules, 2014]
Company can issue shares to employees under a scheme of employees’ stock option, subject to special resolution passed by company and subject to such conditions as may be prescribed.

Meaning of Employee
Employee means-
(a) a permanent employee of the company who has been working in India or outside India; or
(b) a director of the company, whether a whole time director or not but excluding an independent director; or
(c) an employee as defined in clauses (a) or (b) of a subsidiary, in India or outside India, or of a holding company of the company or of an associate company but does not include-
i. an employee who is a promoter or a person belonging to the promoter group; or
ii. a director who either himself or through his relative or through any body corporate, directly or indirectly, holds more than 10% of the outstanding equity shares of the company.

Condition under Rule 8 – Applicable for unlisted companies
1. Special Resolution.
2. Disclosures in the explanatory statement annexed to the notice for passing of the special resolution-
(a) the total number of stock options to be granted;
(b) identification of classes of employees entitled to participate in the Employees Stock Option Scheme;
(c) the appraisal process for determining the eligibility of employees to the Employees Stock Option Scheme;
(d) the requirements of vesting and period of vesting;
(e) the maximum period within which the options shall be vested;
(f) the exercise price or the formula for arriving at the same;
(g) the exercise period and process of exercise;
(h) the Lock-in period, if any;
(i) the maximum number of options to be granted per employee and in aggregate;
(j) the method which the company shall use to value its options;
(k) the conditions under which option vested in employees may lapse;
(l) the specified time period within which the employee shall exercise the vested options in the event of a proposed termination of employment or resignation of employee; and
(m) a statement to the effect that the company shall comply with the applicable accounting standards.
3. Companies are free to determine the exercise price.
4. The approval of shareholders by way of separate resolution shall be obtained by the company in case of-
(a) grant of option to employees of subsidiary or holding company; or
(b) grant of option to identified employees, during any one year, equal to or exceeding one percent (1%) of the issued capital of the company at the time of grant of option.
5. (a) There shall be a minimum period of one year between the grant of options and vesting of option
(b) Company is free to specify the lock-in period for the shares issued pursuant to exercise of option.
(c) No shareholder’s benefits till shares are issued on exercise of option.
6. The amount, if any, payable by the employees, at the time of grant of option-
(a) may be forfeited if the option is not exercised by the employees within the exercise period; or
(b) the amount may be refunded to the employees if the options are not vested due to non-fulfilment of conditions relating to vesting of option as per the Employees Stock Option Scheme.
7. (a) The option granted to employees shall not be transferable to any other person.
(b) The option granted to the employees shall not be pledged, hypothecated, mortgaged or otherwise encumbered or alienated in any other manner.
(c) Subject to clause (d), no person other than the employees to whom the option is granted shall be entitled to exercise the option.
(d) In the event of the death of employee while in employment, all the options granted to him till such date shall vest in the legal heirs or nominees of the deceased employee.
(e) In case the employee suffers a permanent incapacity while in employment, all the options granted to him as on the date of permanent incapacitation, shall vest in him on that day.
(f) In the event of resignation or termination of employment, all options not vested in the employee as on that day shall expire. However, the employee can exercise the options granted to him which are vested within the period specified in this behalf, subject to the terms and conditions under the scheme granting such options as approved by the Board.

Shares on preferential basis [Section 62(1)(c) read with Rule 13 of Share Capital and Debentures Rules, 2014]
Preferential Offer means an issue of shares or other securities, by a company to any select person or group of persons on a preferential basis and does not include
– shares or other securities offered through a public issue,
– rights issue,
– employee stock option scheme,
– employee stock purchase scheme or
– an issue of sweat equity shares or
– bonus shares or
– depository receipts issued in a country outside India or
– foreign securities;

A company can issue shares to any persons on preferential basis, if it is authorised by a special resolution, whether or not those persons include shareholders and employees of the company, either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer subject to such conditions as may be prescribed.

Conditions with regard to issue of shares on preferential basis – Unlisted Companies
(a) Authorisationin AOA;
(b) Special Resolution;
(c) the securities allotted by way of preferential offer shall be made fully paid up at the time of their allotment.
(d) Disclosures in the explanatory statement to be annexed to the noticeof the general meeting:
– the objects of the issue;
– the total number of shares or other securities to be issued;
– the price or price band at/within which the allotment is proposed;
– basis on which the price has been arrived at along with report of the registered valuer;
– relevant date with reference to which the price has been arrived at;
– the class or classes of persons to whom the allotment is proposed to be made;
– intention of promoters, directors or key managerial personnel to subscribe to the offer;
– the proposed time within which the allotment shall be completed;
– the names of the proposed allottees and the % of post preferential offer capital that may be held by them;
– the change in control, if any, in the company that would occur consequent to the preferential offer;
– the number of persons to whom allotment on preferential basis have already been made during theyear, in terms of number of securities as well as price;
(e) the allotment shall be completed within a period of 12 months of passing the special resolution otherwise another special resolution shall be passed for the company to complete such allotment.
(f) the price shall be determined on the basis of valuation report of a registered valuer.

Bonus Shares [Section 63 read with Rule 14 of Share Capital and Debentures Rules, 2014]
A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of—
(i) its free reserves;
(ii) the securities premium account; or
(iii) the capital redemption reserve account:

Condition for issue of Bonus Shares
(a) Authorisationin articles;
(b) Recommendation of the Board,
(c) Authorised in the general meeting of the company;
(d) Company has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities;
(e) Company has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus;
(f) the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up;
(g) it complies with such conditions as may be prescribed.

Note:
– No issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets.
– The bonus shares shall not be issued in lieu of dividend
– The company which has once announced the decision of its Board recommending a bonus issue, shall not subsequently withdraw the same.

Issue of Shares at Premium or Discount

Under Companies Act, 2013, a company may issue shares at par or at premium; but not at discount.

Issue of Shares at Premium (Section 52)
A company may issue shares on premium. Premium means price payable for shares above face value of shares.
Suppose face value of shares is Rs. 10 and company is issuing shares on Rs. 100, Rs. 90 is premium. Company is free to decide the premium on its shares.

Securities Premium Account
According to Section 52(1), where a company issues shares at a premium, whether for cash or otherwise,
– asum equal to the aggregate amount of the premium received on those shares
o shall betransferred to a “securities premium account”.

The provisions of this Act relating toreduction of share capital of a company shall, except as provided in this section, apply as if the securities premium account were the paid-up share capital of the company.

Use of Securities Premium Account
According to Section 52(2) of the Act, the securities premium can be utilised only for:
(a) issuing fully paid bonus shares to members;
(b) writing off the balance of the preliminary expenses of the company;
(c) writing off commission paid or discount allowed, or the expenses incurred on issue of shares ordebentures of the company;
(d) for providing for the premium payable on redemption of any redeemable preference shares ordebentures of the company; or
(e) for the purchase of its own shares or other securities under section 68.

Note:
1. Security premium cannot be treated as profit and as such the amount of premium is not available for distribution as dividend.
2. The amount of premium whether received in cash or in kind must be kept in a separate account, known as the “Securities Premium Account”
3. Any premium paid does not give the shareholder any preferential rights in case of a winding up.
4. Monies in the securities premium account cannot be treated as free reserves, as they are in the nature of capital reserve.

Issue of Shares at Discount – Not Allowed (Section 53)
1. Except as provided in section 54 (Sweat Equity Shares), a company shall not issue shares at a discount.
2. Any share issued by a company at a discounted price shall be void.
3. Where a company contravenes the provisions of this section, the company shallbe punishable with
– fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and
every officer who is in default shall be punishable with
– imprisonment for a term which may extend to six months or
– with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.

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